Ameriquest to Pay $325 Million for Predatory
Lending Practices that Bilked Consumers
This news release was issued jointly by the Department of Banking,
the Department of Consumer Protection and the Attorney General.
January 23, 2006 -
Attorney General Richard Blumenthal today announced a nationwide settlement under which Ameriquest will pay $325 million for predatory lending practices that bilked consumers out of tens of millions of dollars. Joining Blumenthal in the announcement were Department of Banking Commissioner John P. Burke and Department of Consumer Protection (DCP) Commissioner Edwin R. Rodriguez
Blumenthal’s office was on the executive committee, which led the settlement efforts joined by 48 other states and the District of Columbia.
“Ameriquest turned the American Dream of homeownership into a nightmare – using deceit and deception to bilk borrowers desperate for better deals on debt,” Blumenthal said. “The company misled consumers as to key terms like interest rates and prepayment penalties, and inflated their incomes levels and home appraisals – leading to higher loans than they could afford and often causing foreclosures and financial disaster.”
Blumenthal said that Ameriquest pressured appraisers to inflate property values so borrowers could get bigger loans, imposed upfront fees without reducing interest rates as promised and told borrowers to ignore written information about interest rates because they would give them lower rates later. The company is alleged to have given them higher interest rates instead.
Ameriquest also assured some borrowers their loans would have no prepayment penalties, then inserted such payments into the final loan documents; delayed the time period between the loan closing and the funding; and misrepresented fees and costs.
Under the agreement, Ameriquest, the nation’s leading sub-prime lender, will pay $295 million in restitution to consumers nationwide and another $30 million to the states and the District of Columbia for attorneys’ fees, costs, consumer education and enforcement programs.
At least 240,000 of Ameriquest’s approximately 750,000 customers from 1999 to 2005 will receive restitution. Of the approximately the company’s 10,000 Connecticut customers, at least 3,000 will receive a portion of more than $5 million in restitution.
“The abuses were systemic in nature and number – tens of thousands of victims nationwide – and the damage was catastrophic in real life, human terms,” Blumenthal continued. “Consumers lost their homes because they could not afford interest rates on loans after Ameriquest fabricated income and inflated appraisals and trapped them with inadequately disclosed pre-payment penalties. The company took extra cash from consumers to lower interest rates, and then failed to reduce them.
“We will strictly monitor this settlement and scrutinize company conduct going forward to assure that Ameriquest halts these reprehensible practices. We will act to revoke Ameriquest’s license if it violates our laws again. We will continue to aggressively and vigorously enforce Connecticut’s predatory lending laws,” Blumenthal added.
“The department believes that Ameriquest Mortgage Company participated in misleading business practices which have injured Connecticut's citizens," Burke said. "The agency has worked closely with the Attorney General's Office to devise a solution to this matter."
“The mortgage loans deceptively underwritten by Ameriquest Mortgage Company and its affiliates may have affected more than the consumers’ ability to pay them back,” Rodriguez said. “Consumers who default on mortgage loans can face disastrous consequences if their credit scores, which are used for so many other types of decisions, are also negatively affected. Ameriquest’s decision to change its business practice goes a long way to ensure that consumers are now getting a fair deal.”
Sub-prime lenders like Ameriquest cater to consumers unable to qualify for the best interest rates because they have lower credit ratings. Ameriquest’s typical customer is a homeowner seeking to reduce his or her interest costs by consolidating credit card and other debt into a new home mortgage.
Other Ameriquest predatory practices included telling consumers that the initial fixed rate on an adjustable rate loan lasted longer than it did, and instructing them to ignore or disparaging federal truth in lending requirements.
The company routinely fabricated consumers’ income by claiming that recipients had phony “sewing” or “lawn” businesses. In one instance, the company falsely claimed that an elderly Connecticut woman had a sewing business, even though she was blind.
Blumenthal said that his office has received more than 200 consumer complaints about Ameriquest in the last two years.
About half the 49-page settlement outlines wide-ranging reforms that the company agreed to undertake to halt abuses. They include:
- Ceasing to offer salespeople incentives to include prepayment penalties or other fees or charges in the mortgages.
- Providing full disclosure of interest rates, discount points, prepayment penalties, and other loan or refinancing terms.
- Overhauling its appraisal practices by removing branch offices and sales personnel from the appraiser selection process, instituting an automated system to select appraisers from panels created in each state, limiting the company’s ability to get second opinions on appraisals, and prohibiting Ameriquest employees from influencing appraisals.
- No longer encouraging prospective borrowers to falsify income sources or levels.
- Providing accurate, good faith estimates.
- Limiting prepayment penalty periods on variable rate mortgages.
- Halting refinance solicitations during the first 24 months of a loan, unless the borrower is considering refinancing.
- Using independent loan closers.
- Adopting policies to protect whistleblowers and facilitate reporting of improper conduct.
The agreement calls for the appointment of an independent monitor to oversee Ameriquest’s compliance with the settlement. The monitor will have broad authority to examine Ameriquest’s lending operations, including access to documents and personnel, and will submit periodic compliance reports to the attorneys general during the next five years. Ameriquest will pay the monitor’s costs.
Consumers who received Ameriquest loans between January 1, 1999 and April 1, 2003 will need to take no action to receive restitution. They will be contacted automatically and receive a share from $175 million of the settlement according to a formula established by the states. Each borrower will get at least $600, an amount that may increase depending on the number of abusive lending practices in their loans and the number of consumers who chose to participate in the settlement.
The remaining $120 million will be distributed to the states and the District of Columbia to distribute to consumers who obtained Ameriquest loans between January 1, 1999 and December 31, 2005. The states are working on formulas to distribute the funds and determine who qualifies.
Virginia is the only state not taking part in the settlement because Ameriquest does not do business there.
The settlement includes Ameriquest’s holding company, ACC Capital Holding Corporation, and its subsidiaries, Ameriquest Mortgage Company, Town & Country Credit Corporation and AMC Mortgage Services, Inc., formally known as Bedford Home Loan. Amerqiuest is based in Orange, Cal., near Los Angeles.